Dubai, UAE for Business by Oneworld Ltd

Dubai, UAE for Business

Published by Oneworld MidEast ltd Copyright 2014 Oneworld MidEast ltd All rights are reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying or otherwise, without prior writen permission of Oneworld MidEast ltd. Design grafica&grafica Simos Simonis

Dubai, UAE for Business

Foreword In the past 20 years, the UAE has been very successful in diversifying away from dependence on the gas and oil industry and created a solid industrial base together with a strong services sector. The UAE offers unrivalled tax planning opportunities to international businesses, zero corporation and income taxes, an impressive network of double tax treaties, no withholding tax on dividends and interest paid and no levy on capital gains. It is an acclaimed International Financial Centre! The Global Competitiveness Index 2014-2015 published by the World Economic Forum (WEF) ranks UAE as the 12th country in the world in terms of competitiveness. Special economic zones, free trade zones, and UAE offshore companies offer 100 percent ownership, repatriation of profit and capital exemption from taxes and a wide network of 80 double tax treaties. Significant incentives are offered to investors and corporate governance provisions ensure transparency and accountability. The UAE is a white listed onshore jurisdiction that offers offshore jurisdiction services and other opportunities that exist only in mature industrial and financial hubs. A pro-business government encouraging foreign investment has also developed the country into a cosmopolitan centre welcoming a diverse specialist and competitive workforce. Further, Dubai has emerged as a popular jurisdiction for the relocation of high net worth individuals and a strong alternative to UK, Switzerland, Monaco, Singapore and such countries. Oneworld MidEast ltd can assist you on every step of the way to set up your new business or expand in Dubai and the UAE. We have teams of specialists advising clients on their corporate and tax planning. We offer clients integrated, one stop, boutique professional services. And we do our work in strict confidence.

George Philippides Chairman January 2015

Contents Page 1 Introduction

9 - 14

2 A Business Centre

15 - 19

3 Legal Entities

21 - 27

4 Taxation

29 - 32

5 Free Trade Zones

33 - 37

6 IBCs

39 - 40

7 Double Tax Treaties

41 - 45

8 DIFC and Financial Services

47 - 55

9 Redomiciliation

57 - 61

10 Labour

63 - 65

11 Working and HNWI Living

66 - 75

12 Oneworld MidEast ltd

77 - 80

1 Introduction The UAE comprises of a federation of seven emirates - namely, Dubai, Abu Dhabi, Sharjah, Fujairah, Ras Al Khaimah, Umm Al Quwain and Ajman - which have their own rules and regulations. When considering doing business in a foreign country, any investor needs to consider a range of commercial issues that influence the decision of setting up in that country. Briefly, the UAE is an attractive hub for investors to locate their business interests for the following reasons: • no corporate and income taxes, no exchange control restrictions and unrestricted repatriation of income and capital • amongst the most liberal business regimes in the Gulf region and attracts strong capital flows • focused on economic diversification in trade, logistics, banking, tourism, real estate and manufacturing and provides opportunities in all business sectors • has a well established infrastructure, strong banking system and a stable political system • provides for a window of free trade zones that can allow 100 percent foreign ownership and zero taxation • provides a favourable tax environment for most industries • a high number of expatriate workers at all levels of the economy accounting for 80 percent of the work force • culture is driven by Islamic traditions, however, with over 150 nationalities,

expatriates are able to practice their own cultures • provides a safe and secure family environment with one of the lowest crime rates in the world Political system The Supreme Council, consisting of the rulers of each emirate, is the country’s highest authority. It appoints the federal government and ratifies federal legislation. His Highness Sheikh Khalifa bin Zayed Al Nahayan, ruler of Abu Dhabi, is the president of the federation, while His Highness Sheikh Mohammed bin Rashid Al Maktoum, ruler of Dubai, is the vice president and prime minister of the federation. Legislative process Federal legislation is initiated and policy decisions are made by the federal cabinet consisting of the council of ministers chaired by the prime minister. The country’s parliament, the federal national council (FNC), assists the council of ministers in a consultative capacity. The formation of the FNC is acknowledged as a positive step towards promoting people’s participation in the running of the country. The FNC consists of 40 members drawn proportionately from each emirate. Each emirate has its own institutions of local government which enact laws applicable to each emirate. However, federal law applies to the UAE as a whole and overrides provisions of local legislation. 9

Introduction

Political development In 1971, the UAE became a member of the Arab League. Since then, the country has also become a member of other international organizations including the United Nations, the International Monetary Fund, the International Labour Organization, Organization of Petroleum Exporting Countries, the Organization of Arab Petroleum Exporting Countries, the World Health Organization and International Organization for Industrial Development. The UAE is a strong supporter of Arab unity. Gulf Cooperation Council The UAE is also one of the six member countries of the Gulf Cooperation Council (GCC), the other being Kuwait, Saudi Arabia, Bahrain, Qatar and Oman. The GCC aims to promote political stability and economic integration amongst member countries. Geography and climate The UAE lies on the southern shores of the Arabian Gulf and covers an area of about 77.700 square kilometres (sq km), divided as follows: Abu Dhabi 67.340 sq km, Dubai 3.885 sq km, Sharjah 2.590 sq km, Ajman 259 sq km, with the remaining 3.626 sq km, divided between Ras Al Khaimah, Fujairah and Umm Al Quwain. Abu Dhabi includes a number of islands of which the most important in economic terms are the Abu Dhabi island itself, Das, Sadiyat, Umm Al Nar and Zirku. Dubai, a city state, was founded in 1833. It enjoys approximately 70 km of coastline.

The UAE is 4 hours ahead of Greenwich Mean Time. The country has a sub-tropical climate. It is generally hot and humid throughout the summer (May to September) with temperatures ranging between 35o and 45o Celsius, and humidity levels from 60 to 100 percent. It is pleasant during winter with temperatures ranging between 18o and 25o and low humidity levels. Population and language The estimated population of the UAE is 9,4mn. The population of Dubai is approximately 2,5 mn and roughly 2,6 mn and 0,7 mn of Abu Dhabi and Sharjah, respectively. The UAE has a high standard of living with 100 percent primary school enrolment. It is estimated that nearly three quarters of the population are expatriates mainly from the Asian subcontinent, followed by Iran, Egypt and Europe. The official language is Arabic. English is an accepted business language and widely spoken in commercial and governmental organizations. Currency The official currency is the dirham (AED). Notes are issued in denominations of 1000, 500, 200, 100, 50, 20, 10 and 5. The UAE dirham is a convertible currency. Since 1980, the dirham has been pegged to the US$ and is presently set at AED 3,6725 to US$ 1. There are no exchange controls.

In addition to banks, there are ample insurance brokers, financial advisers and other financial services providers. With the emergence of the Dubai International Financial Centre (DIFC) in 2005, Dubai has become a global financial hub

Introduction

Credit cards are widely accepted and automatic teller machines are located in all the emirates.

Airports

The UAE has excellent infrastructure in financial services, communication, transport and pertinent business support services.

Work is underway on the world’s largest airport, the Dubai World Central International Airport in Jebel Ali. Six international airports are in operation, in Abu Dhabi, Al Ain, Dubai, Sharjah, Ras Al Khaimah and Fujairah. Major foreign airlines operate from the UAE and connections are available to most parts of the world.

Financial services

Seaports

The Central Bank of UAE formally commenced operations in 1980 with its main objectives being to direct monetary, credit and banking policy and supervise the implementation of pertinent policies. There is an abundance of international and domestic banks operating in the UAE that extend a full range of banking facilities to the foreign investors. In addition to banks, there are ample insurance brokers, financial advisers and other financial services providers. With the emergence of the Dubai International Financial Centre (DIFC) in 2005, Dubai has become a global financial hub.

The UAE offers excellent shipping infrastructure due to its strategic position in the centre of cargo traffic in the Middle East. Major seaports on the Arabian Gulf are Mina Zayed in Abu Dhabi, Port Rashid and Port Jebel Ali in Dubai, Port Khalid in Sharjah and Port Saqr in Ras Al Khaimah. They are used by the world’s major shipping lines and offer a turnaround time comparable to any developed port in the world. The UAE offers first class ship repair facilities at Dubai dry dock, Abu Dhabi Ship Building Yard and Ajman Ship Repair Yard, with Dubai dry dock being one of the largest dry docks in the world.

Infrastructure

Telecommunications Telephone, telex, facsimile and e-mail facilities are widely available and connections are provided promptly and are reliable. Local telephone calls are free within each emirate. A full range of internet services is available making global information and communication quick and easy.

Road transport is well organized and readily available for transhipments over land to other Middle East locations. Dubai to host World Expo 2020 Dubai has won the right to host the 2020 World Expo, sparking national jubilation in the UAE as the business and tourism hub secured an extra recognition for its growing economy.

Five years after the economic crisis, Dubai became the first Middle East location designated to host the 2020 World Expo, fending off competition from Ekaterinburg in Russia, Izmir in Turkey and Sao Paulo, Brazil in the international vote held in Paris. Expos dating back to the Great Exhibition of 1851 in London, are held every 5 years and allow nations to create pavilions to show-case national developments in science and culture. “Expo 2020 will trigger higher levels of tourism, economic and investment activity in the UAE, further boosting the business environment” said Khalid

Howladar, Dubai senior credit officer at Moody’s rating agency. According to the World Bank, Dubai and the UAE provide the easiest and quickest way for foreign investors looking to set up in the Arab world. A revival of trade and tourism, bolstered by the emirate’s status as a haven in the turbulence of the Arab spring, has helped lift economic growth. The expo will cement the country’s pre-eminence, with Dubai’s commercial sector anticipating an estimated €28,8bn economic boost and the creation of nearly 300.000 jobs.

Introduction

What Can Dubai Offer? • Pro-business government regulations • Secrecy, asset protection and no international exchange of information agreements • Global headquarters centre • Distinguished and unique lifestyle • Best retail hub and experience • Talented and diverse labour pool • World class logistics and IT infrastructure • Strategic location on the trade routes of East and West • Excellent network of Double Tax Treaties • Tax free environment including: - no income taxes - no corporate taxes - no limit on repatriation of profits

14 14

2 A Business Centre The UAE has a vibrant free economy with a significant proportion of revenues arising from exports of oil and gas. Successful efforts have been made to diversify away from dependence on hydrocarbons and a solid industrial platform has been created together with a strong services sector. The establishment of free zones has been an important feature of this diversification policy and the reform of property laws gave a major boost to the real estate and tourism sectors.

through the setting up of legislative frameworks and the provision of developed infrastructure that will further enhance the country’s status as a regional and global destination for investments. The council continues its communication with government agencies and the private sector through workshops and meetings, to coordinate efforts and explore ways to further enhance the competitiveness of the country.

The Global Competitiveness Report 2014-2015 issued recently by the World Economic Forum (WEF) ranks UAE as the 12th country in the world in terms of competitiveness.

Economic and fiscal policy

The UAE has established a council of competitiveness to enhance efforts to achieve sustainable development

Since the early 1980s, the two main economic objectives set by the UAE government have been to reduce reliance on hydrocarbons and boost private sector investment. This strategy is being followed diligently in an effort 15

A Business Centre

to offset the country’s vulnerability to fluctuations in oil prices and to propagate economic growth and stability. The fact that there are no restrictions on current and capital account transactions, helps to implement these objectives as does the fact that foreign entities repatriate dividends, interest or royalties without restrictions, with the exception of foreign banks which are required to obtain the Central Bank of UAE’s approval. The UAE aims to promote free trade with minimum restrictions on foreign trade and investment. The policy of the UAE government to encourage foreign investment is always evidenced with new and impressive industrial and commercial developments frequently announced. Security and stability The UAE is enjoying political stability. This has enabled the implementation of sound economic policies reinforcing the country’s social structure to develop one of the most tolerant, prosperous, secure and safe societies in the world. Dubai and Abu Dubai have been ranked the top two cities in the Middle East region for quality of life, according to latest editions of global surveys. Long time investors include a wide range of multinational companies headquartered there. Tax efficient business environment Special economic zones and free trade zones offer 100 percent ownership, repatriation of capital and profits as well as exemption from taxes. Outside the free zones, significant incentives 16

are made available to investors and corporate governance rules are in place to ensure security, transparency and accountability. Corporate taxes are reserved only for branches of foreign banks and oil producing companies. A small 5 percent tariff is imposed on goods imported from non-GCC countries, except tobacco and alcohol products which are subject to 50 percent customs duties. Proximity to growth regions The UAE’s strategic location between Asia, Europe and Africa is a major advantage to investors, particularly the country’s proximity to some of the world’s fastest growing economies in Asia. India and China alone comprise almost 40 percent of the world’s total population with a combined GDP in excess of US$6 tn, providing significant economic and trading opportunities. Intellectual property protection Intellectual property, including patents and trademarks, is legally protected. The country is also a member of international organizations, treaties and conventions that safeguard intellectual property, including the World Intellectual Property Organization (WIPO), the World Trade Organization (WTO), the Paris Convention, the Patents Cooperation Treaty (PCT), the WIPO Copyright Treaty, the WIPO Performances and the Phonograms Treaty (WPPT) and the Rome Convention. Multinational human resources Investors benefit from an abundant

supply of human resource skills, readiness of professionals migrating to the emirates from nearly every country on the globe, as well as an increasing number of UAE nationals that are joining the private sector. Solid infrastructure Infrastructure in the UAE is second to none. Telecommunications, including mobile telephony and land lines as well as internet access are at least as good as that of the world’s largest international business hubs. The road network is constantly upgraded and ports and airports are of world class standards. The UAE is creating one of the world’s biggest and most efficient cargo handling centres. To date, the government has invested heavily in infrastructure development, and it has also opened up its utilities and other infrastructure to increase private sector involvement. Efficient government services E-government websites, free trade zone authorities as well as chambers of commerce and industry provide new entrants with helpful information and guidance. Tourism With the intention of decreasing reliance on petroleum revenues, the UAE is developing a reputation as one of the world’s leading tourism destinations. According to recent UAE yearbooks, tourism is worth more to Dubai than its oil income. Amongst the projects aimed at developing the tourism industry is the annual Dubai Shopping Festival, a one month

event of entertainment and shopping promotions that attracts visitors from all over the world. Various construction projects, which are at different stages of completion, will substantially increase the number of hotels in the UAE with many of these being situated in unique developments such as “The Palm” and “The World”, which are man-made islands off the coast of Dubai. Future potential of the GCC • the region’s large and mostly young population is expected to grow at a rate of 1,4 percent over the next decade • according to Goldman Sachs, the region is expected to overtake the United States of America as the world’s second largest economy by 2050 • at an average oil price of US$50, the present value of the GCC’s oil and gas exports is assessed at US$18,3tn • total external trade from the region was about US$2,8tn in 2012 • the privatization pipeline in the region is expected to be more than US$900bn over the next 10 years • global infrastructure demand is to reach US$60tn by 2030 according to OECD estimates • there are US$2,4tn worth of infrastructure projects in the GCC, while India has approximately US$1tn in major infrastructure requirements • the Islamic finance industry took 40 years to reach US$1tn in assets (where it is today) but will take only 4 years to reach the US$2tn mark 17

A Business Centre

Global Competitiveness Index 2014 - 2015 Rank

Economy

Value

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Switzerland Singapore United States Finland Germany Japan Hong Kong SAR Netherlands United Kingdom Sweden Norway United Arab Emirates Denmark Taiwan, China Canada Qatar New Zealand Belgium Luxembourg Malaysia

5,7 5,6 5,5 5,5 5,5 5,5 5,5 5,5 5,4 5,4 5,4 5,3 5,3 5,3 5,2 5,2 5,2 5,2 5,2 5,2

The Global Competitiveness Report 2014-2015 assesses the competitiveness landscape of 144 economies, providing insight into the drivers of their productivity and prosperity. The report remains the most comprehensive assessment of national competitiveness worldwide, providing a platform for dialogue between government, business and civil society about the actions required to improve economic prosperity. Competitiveness is defined as the set of institutions, policies and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be earned by an economy. The UAE with a value of 5,3 (out of maximum 6) is now ranked 12th in the World Economic Forum’s Global Competitiveness Index, only 3 places behind the United Kingdom and ahead of 22 EU member countries. The UAE’s strong economic growth owes much to the government’s (particularly Dubai’s) focus on competitiveness. It has jumped rankings more than any other country in recent years. (Source: World Economic Forum, 2014) The World Economic Forum (WEF) is a Swiss non-profit foundation, based in Geneva. It is an independent international organization committed to improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional and industry agendas. The forum is best known for its annual winter meeting in Davos, in the Alps region of Switzerland.

Global Ranking of Financial Centres

Country

Rank

Singapore London New York Hong Kong Zurich Tokyo DIFC Frankfurt Luxembourg Dubai (Onshore) Paris Dublin Doha Manama Riyadh

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

“… The DIFC ranks seventh in the Report. The steady improvement of Dubai and the UAE in global rankings has been largely driven by the DIFC’s emergence as a prominent financial centre. The DIFC draws from the improved performance of the economic environment in Dubai and the UAE. The primary factor behind the DIFC’s performance, however, is its strong capabilities. The DIFC is an example of a financial centre where all soft and hard infrastructure has been purposely built to encourage financial services activity. This provides the DIFC with a natural advantage since the best practice in laws, regulations and supporting infrastructure have been selected from various jurisdictions around the world, giving the DIFC a competitive advantage which is reflected in its strong showing in the capability measurement pillar. Since its inception, the DIFC has created a strong business environment coupled with a very competitive cost structure. A highly-flexible labour market, strong infrastructure, a responsive government and a zero percent tax regime gives it a high capability as a financial centre…” (KPMG, International Financial Centres Competitiveness Assessment)

Infrastructure in the UAE is second to none. Telecommunications, including mobile telephony and land lines as well as internet access are at least as good as that of the world’s largest international business hubs 19

3 Legal Entities Under UAE federal law, foreign investors have three main legal entities to choose from in order to conduct business in the UAE: a local limited liability company (“LLC”), a free zone entity (“FZE”), and an international business company (“IBC”). Companies can also operate by setting up a branch of a foreign company, a representative office of a foreign company, a private or public joint stock company, a general or simple limited liability partnership, a joint venture or providing services through a civil company.

minority shareholder or with third parties. Company law states that companies engaged in banking, insurance or financial services must be public joint stock companies. In practice, the Central Bank of UAE may license an LLC to undertake such activities, provided the LLC’s capital is deemed sufficient, generally not less than AED 50mn.

UAE offers the possibility to conduct business out of a free trade zone. And two emirates, Dubai and Ras al Khaimah, offer IBC regimes.

If the scope of the activities in the UAE is limited, a branch or representative office can be considered as an alternative to the setting up of an LLC. Such an office would also need a local sponsor. The sponsor does not have voting rights and the role is limited to dealing with local and federal government requirements.

Limited liability companies (LLCs)

Free zones entities (FZEs)

A LLC can be formed with a minimum of 2 and maximum of 50 shareholders whose liability is limited to their shares in the company’s capital. Companies with expatriate partners typically opt for this form of company. The voting rights in the company may not exceed 49 percent in profit and loss distribution, and the share in allocation of liquidation proceeds. LLCs can be sold directly to the local market.

If there is no need to sell goods directly to the local market, but office space and local staff is required, then setting up in a free zone is often more attractive than using a local company. Free zone companies also meet the growing necessity in international tax planning of having necessary substance. Often, this is impossible to deliver from the traditional offshore jurisdictions since they typically only offer an IBC regime.

In practice, however, the shareholders can come to an arrangement whereby a higher percentage of profit may be assigned to the minority shareholder and this arrangement can be incorporated into the memorandum and articles of the LLC. Responsibility for management of the LLC may be vested with either the majority or the

Except for acquiring nationality in the UAE, the provisions of the UAE Commercial Companies Law (CCL) do not apply to FZEs, as each free zone has special provisions regulating their entities. The main advantages of setting up in one of the free zones in the UAE are as follows: 21

Legal Entities

• 100 percent foreign ownership is allowed

• office rent: rents outside Dubai are significantly lower

• guarantee for 15-50 years against the future imposition of corporation tax. It is not clear whether the guarantee would also provide exemption against a future imposition of VAT

• minimum office space which is required to be rented

• duty free import of goods, provided the goods are not supplied to the local market

• paperwork involved in forming the business

• streamlined procedures: all formalities are typically dealt with through the free zone authorities instead of the various government departments

• number of visas allocated per sq m office space

• no restrictions on hiring expatriates The main disadvantages as compared to operating as a local business are that there is higher rent than outside the free zones and it is not possible to supply goods directly to the local market. However, goods can be supplied to the local market through a local commercial agency owned by a UAE national and after paying an import duty of 5 percent. Each free zone has its own free zone authority. They are profit making entities. Their main source of income derives from renting office space, collecting licence fees, and providing services to the companies operating in the free zone. All share the features outlined above but differ in the following: • focus of the free zone: free zones often focus on attracting businesses from a particular sector even though there is flexibility. Some free zones do not have a particular focus

• support facilities provided • annual trade licence fees

• capital requirements

In all free zones, annual financial statements must be filed with the free zone authorities . International business companies (IBCs) Dubai, by means of its Jebel Ali Free Zone, and Ras al Khaimah (RAK), through the RAKIA Free Zone and the RAK Free Trade Zone, offer an International Business Company (IBC) regime. These companies are ideal for any type of business that does not require a local office. It can include any passive investment activity eg holding shares in a local or free zone company, holding UAE real estate, or trading activities outside the UAE. IBCs cannot rent office space, cannot apply for staff visas and are not allowed to trade with parties inside the UAE. RAK IBCs have the following attractive features: • not necessary for the owner or manager to visit the UAE in person • no requirement to deposit capital in a bank account

• the only data on public record is the name of the company and date of incorporation • no requirement to file financial statements As with local and free zone companies, offshore companies can benefit from some of the tax treaties concluded by the UAE through setting up a free zone branch. If, for instance, a local corporate bank account is required to benefit from the strong client confidentiality rules applicable in the UAE, then an offshore company from another jurisdiction is simply not a feasible option. There are few banks in the UAE that allow foreign offshore entities to open bank accounts, and for the ones they do, the attestation fees are high. Offshore companies must be incorporated through a licensed registered agent. Branch or representative office of a foreign company A foreign company that wishes to set up a branch or a representative office in the UAE must appoint a local service agent or sponsor who is either a UAE national or a locally registered company that is wholly owned by UAE nationals. Whilst this agent does not gain any right to the business, he fulfils certain functions concerning local and federal government requirements. Approval of the Ministry of Economy is required before applying to the relevant local authorities for

commercial registration and a trade licence. Certain activities may require approval of other ministries. A branch may not carry out any commercial activity in its own name. The branch may only negotiate and enter into contracts on behalf of the parent company, and if goods and services are required to fulfil that contract, they would have to come directly from the parent. Public and private joint stock companies A public joint stock company must have a minimum of 10 founder members and must be managed by a board consisting between 3 and 12 directors. The chairman of the board of directors and a majority of the directors must be UAE nationals. 51 percent of the shares must be held by UAE nationals, with a minimum of 20 percent (maximum 45 percent) being owned by the founder members. These companies are suitable primarily for large projects or operations, since the minimum capital requirement is AED 10mn for a public shareholding company. The law states that companies engaged in banking, insurance or financial services must be public joint stock companies. A private joint stock company shares most of the same characteristics as a public joint stock company apart from a minimum capital requirement of AED 2mn and only 3 founder members. In addition, the shares of a private joint stock company cannot be offered to the public.

Legal Entities

General partnership

Appointing a commercial agent or distributor

Partners in a general partnership can only be UAE nationals. Each partner is jointly and severally liable for all liabilities of the partnership.

Not all foreign businesses require to have a direct presence in the UAE and it is not necessary to do so in order to make direct sales to the UAE. For those businesses that wish to be represented in the UAE, it may be preferable to appoint a commercial agent. There are two types of commercial agencies, described below:

Simple limited partnership A simple limited partnership is defined as a company established by one or more general partners who are fully and jointly liable for all debts and liabilities of the company, and one or more limited partners, whose liability is limited to their share of the capital of the company. Although, all the general partners must be UAE nationals, it is possible for a foreign individual or company to participate in a simple limited partnership. Joint participation (venture) A joint participation (venture) is defined as a company established with two or more partners who share the profits and losses of one or more commercial businesses being carried out by one of the partners in his/her personal name. Since the partner conducting the business will be doing so in his/her own name without declaring or indicating the presence of other partners, the actual existence of this type of company is restricted to the arrangement between the partners, and does not extend to third parties. In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.

Registered commercial agencies Registered commercial agencies are governed by the Commercial Agencies Law which stipulates that a commercial agent must be a UAE national or a company that is wholly owned by a UAE national. There are certain requirements as to the content of commercial agency agreements, which must be formally notarized and registered with the Ministry of Economy. Unregistered commercial agencies Parties to such an agreement cannot benefit from the protection afforded by the Commercial Agencies Law but such agreements are seen as binding commercial contracts. Unregistered commercial agents must be authorized to trade in the UAE but do not need to be UAE nationals or wholly national owned companies. Accounting and audit requirements The companies Law requires locally registered companies and branches of foreign companies to appoint auditors to audit their annual financial statements. In practice, audited financial statements are generally required to be submitted at the time of renewing the trade licence.

Summary Features of Main Legal Entities Local Limited Liability Company (“LLC”)

Free Zone Limited Liability Entity (“FZE”)

International Business Company (“IBC”)

Ownership

At least 51% of the shares must be held by a UAE national (the “local partner”)

100% foreign ownership allowed

Minimum number of Shareholders

Minimum capital

AED 1

AED 10.000 - 1.000.000, depending from Zone to Zone

AED 1

Capital pay-up at Inception

Not required in principle

Depending from zone to zone

Not required

Nature of shares

Registered

Directors: Minimum required Director(s) location

1 Not allowed At least one Director must be UAE resident

1-2, depending on zone Not allowed Some zones require UAE resident, other do not

1 Allowed No restriction

Audited accounts

Required. To be filed yearly at the time of licence renewal

Required. To be filed yearly at Not required the time of licence renewal

Name

Prior approval required, some wording sensitive. Ends with “LLC”

Prior approval required – some wording sensitive. Ends with “FZE”, “FZC” or FZ-LLC”

Prior approval required, some wording sensitive. Ends with “Ltd”

Time frame for incorporation

4 weeks upon receipt of full documentation

2-8 weeks upon receipt of full documentation, depending on the zone

1-3 days upon receipt of full documentation

Language

Arabic/English

English

Legalization process of POA and corporate documents

Legalization and superlegalization mandatory

Apostille sufficient for RAKIA; legalization and superlegalization mandatory for JAFZA

Registered office

Mandatory tenancy agreement on physical premises

Mandatory tenancy agreement on physical premises – virtual office facility available in some zones

Registered agent

Shelf companies

Not available

Available

Briefly

Until the introduction of free zones, the most common form of corporate vehicle for equity participation by foreign investors; mandatory involvement of a local partner.

Corporate structure with physical presence allowing 100% foreign ownership. Subject to some restrictions in the geographical scope of the activity.

Flexible dematerialized corporate vehicle designed on the BVI model, but benefiting from UAE’s secrecy and credibility.

Legal Entities

Summary Features of Main Legal Entities (cont’d)

Activity

Local Limited Liability Company (“LLC”)

Free Zone Limited Liability Entity (“FZE”)

Any lawful activity as listed in the Standard Classification of Economic Activities issued by the UAE Authorities.

Any lawful activity as allowed Any lawful activity as by the zone. No restriction to allowed. conduct services activities in a limited liability form. Ability to: • conduct any authorized commercial activity Ability to conduct any abroad authorized commercial activity in the zone and • hold assets (including real abroad. Companies state) abroad and in the deploying trading activities UAE have to rely on a local agent duly licensed in the • operate a bank account respective emirate for their abroad and in the UAE operations in the UAE. Inability to deploy a commercial activity in the The provision of services UAE. in the UAE is common but

Exception: some activities– ie mostly services activities– cannot be undertaken in a limited liability form. Ability to conduct any authorized commercial activity in the UAE and abroad.

International Business Company (“IBC”)

constitutes a grey area practice. Suitability

• trading in the UAE and abroad • commercial brokerage in the UAE and abroad • manufacturing / industrial activities for prime distribution outside the UAE and larger Middle East countries

• trading outside the UAE

• consultancy services head/regional office operation

• consultancy services material assets holding (including real estate) in the UAE and abroad

• group structuring • manufacturing/ industrial activities for prime distribution outside the UAE and larger Middle East countries

• immaterial assets (eg IP) holding in the UAE and abroad • group structuring • head/regional office operation • operating a bank account in the UAE and abroad

Advantages

• not subject to taxes in the UAE • credibility in high profile trading operations • ability to physically trade in the UAE and abroad • stable environment

residence visas • not subject to taxes in the UAE • credibility in high profile trading operations • white listed jurisdiction

• white listed jurisdiction

• ability to arrange local residence visas

• ability to arrange local

• stable environment

• not subject to taxes in the UAE • flexible legislation • low annual fees • stable jurisdiction • white listed jurisdiction

Summary Features of Main Legal Entities (cont’d) Local Limited Liability Company (“LLC”) Remarks

Free Zone Limited Liability Entity (“FZE”)

International Business Company (“IBC”)

• accounts must be audited • accounts must be audited • relatively lower credibility and filed yearly at the time and filed yearly at the time in high profile trading of licence renewal of licence renewal operations • heavier constitution and operating requirements (as opposed to free zones)

• heavier administration requirements (as opposed to IBCs)

• difficulties to obtain banking facilities (eg trade finance, credit/debit cards)

• most expensive structuring option

• higher constitution and maintenance costs as compared to an offshore entity

• inability to arrange local residence visas

• have to rely on a duly licensed local agent for their operations in the UAE

• cannot avail themselves of treaties’ benefits

• depending on the zone, share capital to be paid up at constitution Tax status

Not subject to: • corporate tax • withholding tax

Total tax and duty exemption Total tax and duty exemption

Double tax treaties, special treaties

Full benefits of DTTs

Considered non-resident for tax purpose, IBCs cannot avail themselves of treaties’ benefits

Disclosure

Identity of shareholders and officers is publicly available

Accessibility to information will vary depending on each zone’s practice

Information contained within the Registrar is not public. A Court Order or equivalent is necessary to obtain the identity of shareholders and officers

Full benefits of special treaties (eg GAFTA)

As with local and free zone companies, offshore companies can benefit from some of the tax treaties concluded by the UAE through setting up a free zone branch

4 Taxation Corporation tax The UAE federation does not impose a federal corporate income tax. The majority of the emirates constituting the UAE federation introduced income tax decrees in the late 1960 and taxation is determined on an emirate by emirate basis. Under the emirate based tax decrees, corporate income taxes may be imposed on all companies including branches and permanent establishments - at rates of up to 55 percent. However, in practice the corporate income tax is currently imposed only on oil and gas companies and branches of foreign banks having operations in emirate. Entities established in a free trade zone in the UAE are treated differently than a normal onshore UAE entity. As previously stated, free trade zones have their own rules and regulations and, from a tax perspective, generally offer guaranteed tax holidays to businesses and their employees that set up in a free trade zone for a period between 15 to 50 years, and are normally renewable. On the basis of the above, the majority of entities registered in the UAE are currently not required to file corporate tax returns in the UAE, regardless of where their UAE business is registered.

who are GCC nationals. Generally, for UAE nationals the social security payment is at the rate of 17,5 percent of the employee’s gross remuneration as stated in the employment contract and applies regardless of the free zone tax holidays. VAT There is currently no VAT in the UAE. However, the UAE along with the other GCC countries is committed to introduce a VAT system in the future. There is no information, at present, on possible rates or when it is going to be implemented. Other taxes Withholding tax There are no withholding tax regulations in the UAE that apply to payments such as royalties, interest or dividends etc made from the UAE entities to other persons, resident or non-resident. That means, payments of any kind made by a UAE company should not suffer any withholding taxes in the UAE. Municipality tax

There are currently no personal income taxes imposed on individuals working in the UAE.

Municipality property taxes are levied in the emirates in various forms, but generally as a percentage of the annual rental value. In some cases, separate fees are payable by both tenants and property owners. For instance, in Dubai they are set at 5 percent of the annual rental value for tenants or for property owners.

There is a social security regime in the UAE which applies only to employees

Municipality taxes are administered differently by each emirate. They may

Personal income tax

Taxation

also be collected at the same time as (or as part of ) licence fees, the renewal of licences or otherwise. As an example, in Dubai the payments have recently started to be collected via the Dubai Electricity and Water Authority billing systems. Hotel tax Generally emirates impose a 5 percent hotel tax on the value of hotel services and entertainment.

Social security and pensions Under the Federal Pensions and Social Securities Law, for a company employing UAE nationals, both the employer and the employee must make social security and pension contributions to the general pension and social security authority. These contributions are based on the salary received by the employees and the following rates apply: Public employer:

Transfer pricing and thin capitalization There is, at the moment, no transfer pricing regime in the UAE. There are also no thin capitalization (debt equity ratio) requirements in the UAE. Customs duty In January 2003, the GCC countries created a customs union for removing the barriers to free trade between them. A flat rate of duty of 5 percent was imposed on imported goods apart from listed exemptions at the first point of entry into the GCC. Those goods may then move freely between GCC countries without the imposition of further duties. Each GCC country has a protective duty items list that specifies items upon which a higher rate of duty is charged. The aim of this list is to protect the national industry from imports from other countries.

15 percent

Private employer: 12,5 percent Employee:

5 percent

There is no requirement for the employer of an expatriate or for the expatriate to make social security contributions. Suitable structures with EU and other countries Dubai and Ras Al Khaimah are not tax havens. However, they avail substantial benefits to investors, many of them maintaining physical presence, property and personnel in free trade zones. Major considerations include: • UAE has a large number of double tax treaties in place with key countries • confidential use of UAE companies and bank accounts • possible use of a UAE company as parent of an EU entity - say Cyprus or Maltese company - or in other jurisdictions, to accumulate dividends and available cash

• use as an “independent company” in UAE for the provision of services, invoice EU company (Cyprus, Malta etc) or in other jurisdictions and collect funds in Dubai • use of UAE company as agent of an EU entity or in other jurisdictions for collections and payments • use of a company in Ras Al Khaimah, through the opening of a branch or tax/VAT representative, with registration in the EU to conduct intra community trade of goods with zero income tax in the EU and the emirates • use of a Ras Al Khaimah company for international trade of goods and services with zero tax

Taxation of foreign oil companies Corporate income tax is applied on foreign oil companies ie companies transacting in oil rights including crude oil or other hydrocarbon materials produced in the emirates. Although the tax rate is 55 percent, the amount of tax actually paid by an oil company is calculated on the basis of a rate agreed in individual concessions between the company and the respective emirate and which depends on operating profits.

Taxation of branches of foreign banks Generally branches of foreign banks are taxed at 20 percent of their taxable income in the emirates of Abu Dhabi, Dubai, Sharjah and Fujairah. The basis of taxation does not differ significantly between the emirates. Dubai, Sharjah and Fujairah have issued specific tax legislation for branches of foreign banks. Abu Dhabi does not have a specific decree for banks. Head office overhead expenses charged to branches are allowable deductions for tax purposes provided that the amount charged is approved by the head office auditors, has been recorded in the books of account of the branch and is reasonable. Specific provisions and write offs are allowed as a deduction only where there is evidence of specific write offs. General provisions are not allowed. Capital expenses cannot be fully written off in one year. Depreciation rates are included in the income tax decree issued by every emirate.

Taxation

Summary Tax Features of Key Countries UK

France

Germany

Switzerland

UAE

COMPANIES Resident companies Corporate tax rates

20% /21%

33,3%

15%

8,5% + other

Tax base

Worldwide

Territorial

Capital gains

Part of business Part of business Part of business income income income

Part of business Part of business income income

20% /21%

Non-resident companies Corporate tax rates

33.3%

15%

8.5% + other

Yes (if participation >25%)

95% exemption

Yes (if participation >10%)

No 0% 20% 0% No

25% 30% 0% 33,3% 33,3%

No 25% 25%/0% 15% No

No 35% 35%/3%/0% No No

No 0% 0% 0% No

Participation relief (inbound/ outbound) Group treatment

No / no

Yes / yes

No / yes

Yes / yes

No / no

Yes

Anti-avoidance

Yes

Resident individuals Income tax rates

Up to 45%

Up to 40%

Up to 45%

Up to 13,2%

Capital gains

18% / 28%

19%

25%

Yes

Up to 45%

Up to 13,2%

Yes (if participation >25%)

40% exemption

Up to 45% 0% 20% 0% 0%

Up to 20% 19%/30% 0% 33,3% 33,3%/0%

Yes 25% 25% 15% No

Yes 35% 35% 0% No/5%

No 0% 0% 0% 0%

Net wealth tax

Yes

Depends

Inheritance and gift tax

Yes

Depends

VAT

20%

19%

Capital gains on sale of shares in No resident companies Final withholding tax rates: branch profits dividends interest royalties fees Specific issues

Individuals

Non-resident individuals Income tax rates

Capital gains on sale of shares in 18% resident companies Final withholding tax rates: employment income dividends interest royalties fee Other Direct Taxes

5 Free Trade Zones Setting up a free trade zone The establishment of free trade zones (FTZs) in the UAE has been one of the most significant and promising initiatives pursued to attract foreign investment. Dubai was the first emirate to establish a FTZ in Jebel Ali. The general benefits of being located in a FTZ are set out below:

• efficient utilities and communication means • no import or export duties, except for sales made from FTZs into the UAE and the GCC • no recruitment restrictions and assistance in obtaining work permits for expatriate staff

• 100 percent foreign ownership

Location of FTZs

• no restriction on profit repatriation

Dubai

• no exchange controls

Dubai has witnessed significant growth in the number of free trade zones. Each zone has a focus on a particular type of industry. The names and industry focus of the major free zones within Dubai are listed below:

• guarantee of no corporate and personal income taxes for 15-50 years and possible renewal • availability of offices, factory premises and warehouses • excellent port, airport and road transport infrastructure

Free Trade Zones

• Jebel Ali free zone: manufacturing, heavy industry and distribution. It also encompasses:

• Dubai Healthcare City: aims to attract providers of healthcare, medical education and research

• Dubai Cars and Automotive City (DUCAMZ) free zone: re export of automobiles

• Dubai Maritime City: aims to attract companies engaged in vessel design, manufacture, repair and maintenance and marine management and related services

• Dubai Gold and Diamond Park free zone: dealing in precious metals and stones • Dubai Airport free zone (DAFZ): light industry, distribution, service industries including insurance • Dubai Technology and Media free zone includes: • Dubai Internet City: information and communication services • Dubai Media City: media related business • Knowledge Village: education and learning establishments • Dubai Multi Commodities Centre (DMCC): aims to attract the world’s leading precious metals, jewels and commodities traders. This zone also includes a manufacturing facility and a diamond trading bourse • Dubai International Financial Centre (DIFC): focuses on financial institutions and financial services firms and has elevated the UAE to the position of a leading financial centre. The zone is subject to a comprehensive regulatory regime that follows international standards. The regulatory authority in the DIFC is the Dubai Financial Services Authority (DFSA)

Other free trade zones in Dubai include Dubai Aid and Humanitarian City, Dubai Techno Park, Dubai Auto Parts City, Dubai Textile Village, Dubai Heavy Equipment and Trucks, Dubai Industrial City (DIC), Dubai Flower Centre, Dubai Logistics City, Dubai Silicon Oasis, Dubai Studio City, Dubai Carpet free zone and Dubai Outsource. Abu Dhabi • Abu Dhabi free trade zone (ADAFZ): the objective of this free trade zone is to establish Abu Dhabi as a major bulk commodity trading base to initiate the development of other existing industrial zones in the emirate • Higher Corporation for Specialized Economic Zones (HCSEZ): the HCSEZ establishes specialized economic zones across a range of industries in Abu Dhabi. The benefits of the zones are similar to those in free trade zones • Industrial City of Abu Dhabi: the objective is for industrial projects

Sharjah

Umm al Quwain

• Hamriyah free zone: established in Sharjah, this free trade zone caters to industrial, manufacturing, processing and assembling industries. Sharjah is the only emirate with ports on the Arabian Gulf’s east and west coasts with direct access to the Indian Ocean

• Umm al Quwain free trade zone: it is known as the Ahmed Bin Rashed Port and Free Zone and caters for light industrial development

• Sharjah Airport International free trade zone: aims to capitalize on Sharjah’s excellent access to both east and west by attracting light manufacturing, storage and distribution business together with services industries Ras al Khaimar (RAK) • Ras al Khaimar free trade zone: set up in 2000 on Al Hulayla Island, this free trade zone aims to attract all types of investment with an aggressive marketing plan, intending to turn this zone into the leading free zone of the northern emirates • Ras al Khaimar Media free zone: media related business

Business entities available An independent free zone authority governs each FTZ. The rules and regulations of each FTZ do not differ substantially, all being simple yet comprehensive. The UAE Companies Law is not applicable in the FTZs. In most FTZs there is a combination of two or all of the following three types of business entities available to the foreign investor: Free zone company (FZCo) A FZCo has the following characteristics: • has limited liability • requires a minimum of two shareholders • minimum share capital is dependent on the FTZ

Fujairah • Fujairah free trade zone: located near Fujairah Airport, it attracts manufacturing, distribution and general trading industries Ajman • Ajman free trade zone: attracts all types of business from heavy manufacturing to professional service companies

Free zone establishment (FZE) A FZE has the following characteristics: • has limited liability • requires a maximum of one shareholder • minimum share capital is dependent on the FTZ

Free Trade Zones

Branch of a foreign company

Industrial licence

A branch has the following characteristics:

This licence is required for the manufacture of products

• it is governed by the rules and regulations of the parent company • the activities of a branch in a free trade zone depend on the type of licence issued. It can carry out commercial activities in the free zone by receiving a licence that allows it to do so Types of licence To operate in a FTZ, all businesses need a licence. The type of licence depends primarily on the nature of the activity undertaken. Generally, in most FTZs a combination of the following types of licences are available to the foreign investor: Trading licence This enables companies to carry out general trading activities as specified in the licence

Services licence A services licence is necessary where the activities undertaken are of a services nature Accounting and audit requirements As FTZs have their own laws and regulations, accounting and audit requirements can differ between free trade zones. As an example, Jebel Ali free zone and Dubai Airport free zone require limited liability entities to file annual financial statements together with an audit report, within 3 months of the end of the entity’s financial year. However, limited liability entities in the Dubai Technology and Media free zone are not subject to the same requirements. Branches are not required to lodge audited financial statements with free zone authorities.

UAE Double Tax Treaties Apply in the Free Trade Zones Prima facie, bilateral treaties do not distinguish between companies established in a free trade zone and companies incorporated as local LLCs within the UAE. Strategies for utilizing the UAE double tax treaties Below are some general strategies for setting up in the UAE and taking advantage of its double tax treaties with other countries. Strategy One: Establishing a free trade zone entity The free trade zones allow to have a UAE entity which is 100 percent foreign owned and yet take advantage of: • low formation and annual costs • visa sponsorships • a range of options for physical presence, from flexi desks (virtual desks) to complete buildings and industrial developments • no taxes • no exchange controls or thin capitalization restrictions • an individual acts as the “Manager” and is nominated for each company Strategy Two: Combine a free trade zone entity with an IBC Owning a free trade zone entity or creating a free trade zone branch of the IBC provides the following benefits: • confidentiality of ownership and operations; physical presence or management as required by some treaties for treaty protection • restricted custodian and nominee shareholdings • ability to have investments in the UAE and yet not carry on business • choice of law - common law, civil law etc • access the UAE double tax treaty network • no local meetings, audits, or local presence requirements

• migration in and out of the jurisdiction, and • OECD white list jurisdiction Strategy Three: Global head office company/IP holding company In the majority of the UAE double tax treaties which look through limitation provisions, the use of the UAE as the place of the head office of a company to minimize global taxes is an under-estimated and under-utilized strategy. The relocation of the head office of the known US company, Halliburton to Dubai is one example of this strategy. However, for the majority of practitioners, the use of UAE treaty networks in this manner has been ignored possibly due to lack of information. The choice of law for IBCs provides for the head office company to own patents, IP trademarks, confidential know-how and copyright under the laws of any jurisdiction and to license this technology to a free trade zone entity or to other countries worldwide. The treaty network will reduce withholding taxes, impose no taxes in the UAE and ensure legal enforceability in licensing securities and charges outside the ambit of the local UAE or DIFC laws. Strategy Four: Residence and domicile for directors and senior staff Whilst domicile in the UAE may not be possible depending on the laws of the home country, certainly with a renewable residence visa that is issued to persons or associates of a free trade zone entity, individuals may reduce or eliminate home country taxation. In many cases, following the OECD model, the treaties provide for directors’ fees paid to a nondomiciled director of a UAE entity to be exempt from tax in the home country. The UAE presents a unique window of opportunity. The system of IBCs combined with the benefits of the free zones and the extensive network of double tax treaties make the UAE an attractive proposition.

6 IBCs Since first introducing the concept of offshore companies in 2003, the UAE has rapidly emerged as the structuring hub of choice in the larger Middle East region, in addition to being one of the fastest growing International Financial Centres. The recent attack on uncooperative tax havens initiated by the G20 has cemented the UAE’s popularity as a valuable alternative to traditional offshore centres. The Jebel Ali free trade zone authority (JAFZA) in Dubai was the first to issue regulations governing international business companies (IBC). In Ras al Khaimah, there are two authorities offering offshore set-ups, the Ras al Khaimah investment authority (RAKIA) and free trade zone (RAK FTZ). Registrars permit 100 percent foreign ownership and offer tax and duty exemptions. The regulations of both Registrars are in line with the latest international best practices. Most importantly, the UAE is not black or grey listed by the OECD, FATF and other international organizations. Like most offshore vehicles, UAE IBCs can serve multiple purposes eg trading operations, asset holding and protection, tax planning, services invoicing etc.

In addition, UAE IBCs can easily open and operate a bank account within the UAE and abroad. Free zone entities using IBCs An important aspect for foreign investors and global companies is the use of a UAE free trade zone in establishing a UAE presence. The free trade zones are used by foreign investors to retain 100 percent beneficial ownership. The benefits of the double tax treaties apply to free trade zone entities established by foreign investors. The combination of a free trade zone entity with an international business company IBC (the offshore vehicle) and a trust or foundation can also be extremely effective in providing confidentiality where required in tax planning. Indeed the UAE is the only OECD white list jurisdiction that has no taxes for international companies, free trade zones or local companies or individuals. The combination of the IBC and the free trade zone entity, provides a confidential flexible company with a physical presence that becomes a powerful key, unlocking the benefits of the UAE double tax treaty network.

RAK IBC Minimum number of directors 1 Corporate directors Allowed Nature of shares Registered Minimum capital AED10.000 Legalization process of PoA Apostile sufficient and corporate documents Time frame 1 day Redomiciliation Allowed

JAFZA IBC 2 Not allowed Registered AED 1 Legalization and super legalization mandatory 5-7 days Not allowed

The combination of a free trade zone entity with an international business company IBC (the offshore vehicle) and a trust or foundation can also be extremely effective in providing confidentiality where required in tax planning. Indeed the UAE is the only OECD white list jurisdiction that has no taxes for international companies, free trade zones or local companies or individuals

7 Double Tax Treaties Dubai is a no tax emirate. Accordingly, double tax treaties are aimed at making Dubai a more attractive territory in which to operate by reducing taxation levied in the foreign jurisdiction on profits remitted abroad by foreign corporations operating in Dubai. The UAE has an extensive and growing list of double tax treaties, which currently numbers over 80. The network includes treaties with China, Cyprus, France, Germany, India, Indonesia, Italy, Luxembourg, Malaysia, Malta, the Netherlands, Singapore, South Korea, Switzerland and Ukraine. Although corporate income tax is not levied in the UAE, the provisions of the treaties do not state that such income must be taxed to qualify for benefits. Thus dividend income paid by a UAE company to a company which has a double taxation treaty with UAE may not be taxable in the hands of the foreign parent corporation. However, it is advisable to study the text of the treaties themselves before assuming anything about the tax treatment of non taxable income flows originating in Dubai. The “place of incorporation” criterion is part of many of the UAE treaties and simply states that, if a company is incorporated or created in the UAE, then it will be a resident for the purposes of that particular treaty eg Armenia, Finland, Mauritius, Mongolia, Luxembourg, Sri Lanka, Austria, Switzerland, Mozambique, New Zealand etc.

Some countries impose the additional test of place of effective management eg Germany, Korea, Spain, Romania, India and Canada. This is determined as a question of fact. Factors include: • key office location • place where meetings are held or initiated • domicile of controlling individuals • banking relationships • head office mailing address • location of auditor and accounts • residence of the manager or management The free trade zones offer facilities such as offices, managers, call centres, banking relationships etc allowing companies to change their place of effective management, subject to the provisions of the treaties. Limitation on treaty benefits (LOB) Only a few UAE bilateral treaties contain a LOB clause, although the more recent treaties tend to include them. Treaties containing LOB clauses include: • India (new 2007 Protocol) requiring a bona fide business activity • Luxembourg which includes consultation if treaty shopping is taking place

Double Tax Treaties

• Belgium requires attention to be given if improper use of the agreement is found. A bona fide business activity can easily be established through the use of a free trade zone entity where trade, commercial or consulting licences are available together with resident visas for staff • Netherlands’ bilateral treaty which specifically excludes companies or individuals who are exempted from tax by a special tax regime under the laws of one of the contracting states Exchange of Information and confidentiality The majority of UAE treaties do not contain the new OECD exchange of information clause. This is of critical importance as article 26 on exchange of information has been greatly expanded since July 2005. Prior to 2005, one contracting state could not request another contracting state to provide information that could not be sought under the laws of the other contracting state in the absence of criminal activity. The new provisions make it clear that a country cannot refuse a request for information solely because it has no domestic tax interest in the information (paragraph 4) or solely because it is held by a bank or other financial institution (paragraph 5).

Even with a post 2005 OECD exchange of information clause, countries are not at liberty to enter into “fishing expeditions”. Information exchange even under a new treaty is far more restricted than, for example, information exchange pursuant a Tax Information Exchange Agreement (TIEA), that many OECD grey list countries will be forced to enter into. A list of advantages of the UAE relating to its confidential business environment and banking services, include: • confidentiality for beneficial owners with the authorities and no information exchange agreements • bank confidentiality • safe, adequately capitalized banks with 100 percent government guarantees • UAE banks allow the possibility of easy and non-time consuming account opening procedures and no obligation for clients to travel to the UAE to meet in person • no currency control restrictions or limitations in the movement of capital • UAE does not appear on any “black list” • mature, safe, well capitalized and regulated

UAE expanding tax treaty network The UAE offers an ever extensive and steadily expanding tax treaty network, enabling investors to reap the tax benefits of using a UAE based entity as a vehicle to hold investments worldwide, while also increasing the attractiveness for the foreign investors to set up in the UAE. While in the past countries were hesitant to allow significant benefits in treaties with low or zero tax countries such as the UAE, many newer treaty partners have realized the advantages of making it attractive for inwards investments by investors in one of the wealthiest countries on earth.

There are a number of key benefits to look out in a treaty country with the UAE which make it attractive: • low or zero withholding tax • absence of liability to tax requirement • UAE source income is exempted rather than tax credits given • limited anti-avoidance provisions • whenever a UAE tax residence certificate is required

Double Tax Treaties

UAE Double Tax Treaties Network Recipient

Dividends %

Interest %

Albania Algeria Armenia Austria Azerbaijan Bangladesh Barbados Belarus Belgium Benin Bosnia & Herzegovina Brunei Bulgaria Canada China Cyprus Czech Republic Egypt Estonia Fiji Finland France Georgia Germany Greece Guinea Hong Kong Hungary India Indonesia Ireland Italy Japan Jordan Kazakhstan Kenya Korea Latvia Lebanon Libya

-/3 5/10 5/10 -/5/10 -/5/10 -/5 5/10/15 7 -/5 5/10/15 -/5 10 10 5/15 5 5/10 0/5 -

-/7 5 -/5 -/2 -/10 7 0/10 -/5 -/5/12.5 -/5 10 -/10 0/2.5 -

Royalties %

10 5 5/10 5/10 -/5 5 -/5 10 10 10 10 10 -/5 10 5 10 10 5 5 -

Recipient

Dividends %

Lithuania Luxembourg Malaysia Malta Mauritius Mexican Mongolia Montenegro Morocco Mozambique Netherlands New Zealand Pakistan Palestine Panama Philippines Poland Portugal Romania Russia Serbia Seychelles Singapore Slovenia Spain Sri Lanka Sudan Switzerland Syria Tajikistan Thailand Tunisia Turkey Turkmenistan Ukraine Uruguay Uzbekistan Venezuela Vietnam Yemen

5/10 10 0/5/10 -/5/10 5/10 15 10/15 5 -/10/15 -/5 5/15 -/3 0/5/10 5 0/5 5/15 -/10 5/15 10 5/10/12 -/5 -/5/15 5/10 -/5/15 -

Interest %

-/5 0/10 -/10 -/10 -/10 0/5 -/10 -/5 -/10 -/3 0/10 -/7 0/5 -/10 -/10 10/15 2.5/5/10 -/10 -/3 -/10 10 -/10 -

Royalties %

10 10 0/5/10 -/10 -/5 10 12 5 10 5 5 3 10 5 5 0/5 10 5 18 10 15 7.5 10 10 -/10 10 10 10 10

8 DIFC and Financial Services The Gulf Cooperation Council countries (GCC) and especially the UAE benefit from a vast pool of wealth and a growing appetite for specialist investment products. There is also an increasing demand from high net worth individuals for tailor made solutions which meet their specific and individual wealth management requirements. The legislative and regulatory regime in the UAE has created a highly supportive and secure environment for the growth of the Funds industry. In compliance with IOSCO Principles, the Funds regime allows for the domiciliation, management and distribution of funds from the Dubai International Financial Centre (DIFC). The UAE has two parallel jurisdictions concerning financial services: • governed by the UAE Federal legislation (establishing onshore) • the DIFC, a free trade zone operating by own laws and regulations Establishing onshore The activity of financial consultation and financial analysis is subject to licensing by the Emirates Securities and Commodities Authority (ESCA), pursuant to the federal law no 4 of 2000 concerning the authority and amendments thereof. A person may not practice the financial consultancy and financial analysis business without obtaining the required licence for this purpose, according to decision no 48/R of 2008 concerning the financial consultation and financial analysis.

ESCA shall issue its decision to approve or reject the licensing application within 30 days from the date of receiving the application that have satisfied the terms, requirements and technical standards set by markets and approved by ESCA. In order to obtain a licence to practice the activity of financial consultation and financial analysis, the following key conditions must be met: • UAE company (one of the forms in federal law pertaining to commercial companies) applying and at least 51% of its share capital is held by UAE or GCC nationals • the purposes of the company include practising the business of financial consultation • the paid up share capital of the company is at least AED 1mn (approximately US$ 272.000) • the company has the required qualified technical and administrative personnel to practice the business of financial consultation and financial analysis • the company has an internal control and regular audit system • possesses the required administrative and technical staff to practice its business • foreign companies licensed by similar regulatory authorities in their own countries may practice the business of financial consultation and financial analysis, provided that such companies have at least 5 years of experience and satisfy the other conditions

DIFC and Financial Services

Dubai International Financial Centre (DIFC) With the recent economic development fuelled by the significant increase in oil prices, rapid expansion of trade, population growth and the vast infrastructure projects currently under way, there was a growing requirement for a financial centre to serve the rapidly expanding needs of institutions and governments in the region. Hence, the emergence of the DIFC. In 2003, the federal cabinet of the UAE approved federal decree no 35 of 2004 allowing for the full establishment of the DIFC as a financial free trade zone with a substantial degree of sovereignty from the Central Bank of the UAE. Consequently, the law of the Dubai International Financial Centre no 9 of 2004 was enacted in September 2004, which completed the legislative steps required in order to make the DIFC operational and to formally establish its financial and administrative independence. The DIFC is an onshore financial centre strategically located between the east and west, which provides a secure and efficient platform for business and financial institutions to reach into and out of the emerging markets of the region. The quality and range of the DIFC’s independent regulation, common law framework, supportive infrastructure and its tax friendly regime make it the perfect base to take advantage of the region’s rapidly growing demand for financial and business services.

At the heart of the DIFC model is an independent risk based regulator, the Dubai Financial Services Authority (DFSA), which grants licences and regulates the activities of all banking and financial institutions in the DIFC. The regulatory body was created using principle based primary legislation modelled closely on that used in London and New York. The DFSA has played a major role in providing financial companies the confidence that they have a sound, stable, secure and growth-oriented platform for their business. The DIFC is unique in that it has a legislative system consistent with English Common law. Given its construct, the DIFC has its own set of civil and commercial laws and regulations and has developed a complete code of law, governing financial services regulation. As part of its autonomy, the DIFC has created an independent judicial system. The DIFC courts are responsible for the independent administration and enforcement of justice in the DIFC. The courts have exclusive jurisdiction over all civil and commercial disputes arising within the DIFC and/or relating to bodies and companies registered in the DIFC. The DIFC law is to be applied within the DIFC notwithstanding any federal UAE law, except the UAE Criminal Laws. The DIFC Law no 3 on the application of civil and commercial laws in the DIFC, the relevant jurisdiction applied is in accordance with the following hierarchy:

1. DIFC law or any other law in force in the DIFC 2. The law of any jurisdiction other than that of the DIFC expressly chosen by any DIFC law 3. The laws of a jurisdiction as agreed between all the relevant parties concerned in the particular matter 4. The laws of England and Wales Moreover, an autonomous body, the DIFC judicial authority is responsible for administering and enforcing civil and commercial laws in the DIFC. The DIFC courts, including both trial and appellate courts, deal exclusively with all cases and claims arising between the DIFC registered entities and out of the DIFC operations. The official language of the courts is English. The DIFC concept has evolved as a means of: • providing depth to the regional financial markets by broadening the range of traditional methods of financing currently provided by regional banks • attracting liquidity back into investment opportunities within the GCC, thereby contributing to its economic growth • facilitating planned privatizations in the GCC region and enabling initial public offerings of privately owned companies, thus providing impetus to the programme of deregulation and market liberalization throughout the region

• contributing to the development of regional stock markets which, in turn, will contribute towards broadening the capital and ownership base of private sector companies, and promoting the growth of Islamic finance and the development of the region’s reinsurance sector The DIFC is a wholesale financial centre catering primarily to institutional investors and accordingly does not cater for retail financial businesses. It focuses on the following financial services sectors: Banking The DIFC offers a wholesale platform for investment banks and financial intermediaries looking to establish underwriting, M&A advisory, venture capital, private equity, private banking, trade finance and brokerage service operations and to take advantage of the numerous associated opportunities in the GCC region and elsewhere. Capital markets The Dubai International Financial Exchange (DIFX) provides a liquid and transparent market for the successful privately owned companies in the region and soon to be privatized businesses which require listings on a liquid, transparent and efficient stock exchange. It also offers facilities to companies from outside the region to be dual listed.

DIFC and Financial Services

Asset management and fund registration More than a trillion US dollars of wealth is held by institutional and private investors in the GCC region. Many regional companies and retail banks outsource the management and administration of these funds to specialist providers outside the region. The DIFC offers a highly attractive opportunity for asset management firms and private banks to gather and manage this growing pool of assets closer to their client base.

Insurance and reinsurance Due to slow growth in more mature traditional markets, the world’s insurance and reinsurance companies are now assessing markets such as the Middle East. The DIFC has set out to create a global reinsurance hub to foster the development of a thriving insurance market by attracting global insurance and reinsurance companies, brokers, captives and other service providers.

Islamic finance

Business processing operations (BPO)

The global market for Islamic financial products is worth over $260bn and is expected to grow between 12 and 15 percent a year over the next 10 years. It is likely to account for some 50 to 60 percent of the total savings of the world’s 1.2bn Muslims within the next decade.

The growth of BPO and outsourcing have been permanent features of the financial services industry in recent years. With its world class IT infrastructure and ready access to the region’s large pool of educated and skilled professionals, Dubai is well placed to become the location of choice for the global back office operations of banks and other financial institutions. The DIFC offers a very attractive proposition as a location for such support activities. Ancillary services providers In addition to the above sectors of financial activity, the DIFC attracts high calibre reputable ancillary service providers that offer quality services, thereby providing a robust platform and effective operating environment to support the various types of activities and operational needs of financial institutions. Such services include accounting, legal and actuarial practices, management consultants, recruitment firms, market information providers and others.

DIFC and Financial Services

Benefits of Setting Up in the DIFC As a fresh global jurisdiction for financial institutions, the DIFC offers financial institutions operating within the centre a number of important benefits and advantages in an attractive investment environment, including: • 100 percent foreign ownership • zero percent tax rate on income and profits for a period of 50 years from inception • freedom to repatriate capital and profits without restrictions • a wide network of UAE double tax treaties also available to DIFC entities • a world class, independent regulatory agency working alongside other financial regulatory agencies located in major global jurisdictions • international legal system based on common law of England and Wales • no Shariah compliance required • an international stock exchange with primary and secondary listings of debt and equity instruments • a variety of legal vehicles that may be established with capital structuring flexibility • a pool of skilled professionals residing in Dubai and the GCC region • a wholly transparent operating environment, complying with global best practices and internationally accepted laws and regulatory processes • potential access to the UAE’s wide network of double tax treaties • a dollar denominated environment DIFC licensees are not subject to the UAE or Dubai financial and banking legislation, except from the UAE Central Bank’s anti-money laundering regulations and the federal penal code, imposed within the UAE.

INTERNATIONAL BANKS IN THE DIFC

Dubai Financial Services Authority (DFSA)

extent to which those regulators share the DFSA’s high standards of regulation.

Created under law no 9 of 2004 and entirely independent of the DIFC authority and the DIFC judicial authority, the DFSA is the integrated regulator responsible for the authorization, licensing and registration of institutions and individuals who wish to conduct financial and professional services in or from the DIFC.

The application process entails:

The DFSA also supervises regulated participants and monitors their compliance with applicable laws regulations and rules. It is empowered to make rules and regulations, as well as develop policy on relevant market issues and, in turn, enforce the legislation that it administers. Applicants must provide detailed submission to the DFSA on a wide range of matters. The DFSA rigorously assesses this information to ensure that an applicant is both willing and able to achieve and preserve the high standards applicable in the DIFC. The DFSA assesses operating standards relating to competence, financial soundness and integrity. It considers the extent to which a firm, and any of its group entities, may be subject to external regulation, as well as the

• the applicant’s fitness and suitability to hold a licence, authorization or registration • the professional or industry qualifications, competence, and experience of the applicant’s employees • the robustness of the applicant’s business plan, and its ability to effectively manage and control its activities • the applicant’s background and regulatory history • whether the applicant has sufficient resources, including those relating to capital, systems, personnel, risk management and internal controls • the suitability of the applicant’s controllers and other closely linked entities and the jurisdictions in which they are established • the applicant’s willingness to deal in an open and co-operative manner with the DFSA The following financial services are permitted by authorized firms in the DIFC and regulated by the DFSA:

ASSET MANAGEMENT FIRMS IN THE DIFC

DIFC and Financial Services

• accepting deposits

Categories of licences

• providing credit

Authorized firms can be divided into five categories of licence, each with its own rules and capital requirements.

• providing money services • dealing in investments as principal • dealing in investments as agents • arranging credit or deals with investments • managing assets • advising on financial products or credit • operating a collective investment fund • providing custody • arranging custody • effecting contracts of insurance • carrying out contracts of insurance • insurance determination • insurance management • managing a profit sharing investment account • operating an alternative trading system • providing trust services • providing fund administration • acting as trustees of a fund

54 54

CATEGORY 1 (Full licence) Accepting deposits, managing a profit sharing investment account (PSIA) CATEGORY 2 (Principal) Providing credit, dealing in investments as principal CATEGORY 3 (Asset management) A. Dealing in investments as principal (where it does so only as a matched principal) or dealing in investments as agent B. Providing custody (where it does so for a fund) or acting as the trustee of a fund C. Managing assets, managing a collective investment fund, providing custody (where it does so other than for a fund), managing a restricted PSIA or providing trust services (where it is acting as trustee in respect of at least one express trust) CATEGORY 4 (Advising and custody) Arranging credit or deals in investments, advising on financial products or credit, arranging custody, insurance intermediation, insurance management, operating an alternative trading system, providing fund administration or providing trust services (where it is not acting as trustee in respect of an express trust)

Private equity firms have invested $6.6bn in the region this year*, up from $141mn in the same period in 2013 *September 2014 Private Equity Discovers the Middle East “… KKR, Blackstone Group and other large private equity firms have long parachuted into the Middle East to hunt for cash from the region’s sovereign wealth funds and family investment offices, only to carry it back to make investments in Western companies. Now they’re putting money to work in the region. The flurry of investments follows a revival of the Middle East economy because of strong oil prices and increased government spending. It also represents a thank you of all sorts from buyout firms. Blackstone has tapped Middle Eastern investors for about $23 bn, or 8 percent of its total assets under management, according to a person familiar with the matter, who asked not to be identified because the information is private. KKR filings show that at the end of last year 5 percent of its $61,2 bn in assets came from the Middle East. Many of the recent deals represent the first time the firms have invested in the Middle East. Blackstone teamed up with Dubai-based Fajr Capital to invest in GEMS Education, a Dubai company that runs K-12 schools around the world, people familiar with the matter said in August. Warburg Pincus, a private equity firm managing about $37 bn in assets, made its first investment in the Middle East in April, agreeing to acquire a controlling stake in Marcator, a Dubai aviation software company. Warburg Pincus is looking beyond Europe to diversify its investment portfolio. Joseph Schull, head of the business in Europe, said when the deal was announced. One reason for the new interest in the Middle East is that it offers richer opportunities than the West. The MSCI World Index, which tracks developed markets around the globe, is up 116 percent since its March 2009 low. Higher prices make it harder for private equity firms to find bargain companies to buy. “It’s not been easy for private equity funds to generate 20 percent returns from their main markets,” says Harry Hampson, JPMorgan Chase’s head of financial sponsors group for Europe, the Middle East and Africa. The MSCI Emerging Markets Index has gained 84 percent since March 2009. The internal rate of return – a standard measure for buyout funds – for private equity deals on Gulf investments is about 27 percent to 30 percent, compared with 20 percent to 24 percent for deals in the West, according to Al Shroogi...” (Bloomberg Businessweek, 25 September 2014).

55 55

9 Redomiciliation In line with international practice of allowing companies to change their seat of incorporation, companies are allowed under the laws of RAK free trade zone (“RAK FTZ”) in UAE to change their jurisdiction. Redomiciliation assists companies to avoid liquidating the existing company and transfer portfolio of assets an entity incorporated for the purpose of the new jurisdiction. What is redomiciliation As much as a company can change its registered office or registered agent within the same jurisdiction, it can also “move” to a new jurisdiction. Corporate redomiciliation is the process by which a company moves its ‘domicile’ (or place of incorporation) from one jurisdiction to another by changing the country under whose laws it is registered or incorporated, whilst maintaining the same legal identity. The ease with which redomiciliation may take place has increased in recent years. Not all countries allow redomiciliation. Those that do, tend to be Commonwealth common law as opposed to civil law jurisdictions. Notable exceptions are Austria, Hungary, Latvia, Luxembourg and Liechtenstein which are civil law countries but permit redomiciliation. We list at the end of this paper main jurisdictions that allow and those that do not allow redomiciliation. To redomicile, both the existing jurisdiction (where the company is currently registered) and the target jurisdiction (where is to be ‘continued’) must be on the list of countries where redomiciliation is possible. There are

certain countries (UK, Hong Kong, Singapore, the Netherlands) that one might expect to allow redomiciliation and do not. In such cases other solutions must be sought. Why redomicile Companies redomicile for a variety of reasons including: • benefit from a favourable tax environment • take advantage of less stringent regulatory provisions • align their place of registration with their shareholder base • move to an international financial centre • access specialist capital markets Where an existing company migrates or redomiciles to RAK FTZ, the company’s existing legal status, goodwill and operational history is preserved. This process will allow for companies who currently operate in more costly, difficult regulatory, high tax and high liability environments in other countries to migrate to RAK FTZ without triggering a disposal of their assets or a diminution in their goodwill or operating history. The response to the global financial crisis by many OECD countries has been to call for greater regulation, greater scrutiny and ultimately increased taxes. However, this will result in increased costs of doing business in a global business environment where companies must seek to reduce costs to weather and survive the forecast downturn in global markets.

Redomiciliation

The RAK FTZ registration system allows companies to base their global operations and activities for a fraction of the regulatory costs of being incorporated in and doing business in other countries. Offshore companies can also do business within the UAE provided appropriate licenses are obtained.

• global headquarters centre

Migrate to UAE

The outgoing jurisdiction

The ability to migrate companies to RAK FTZ opens tax planning dimensions for investors and businessmen.

a) the outgoing company must be fully up to date with filings. For example, if financial statements are required these must be filed up to date together with any outstanding annual returns etc. Most offshore jurisdictions do not require financial statements to be filed rather they would need from the directors a declaration of solvency and ability to continue as solvent in the incoming jurisdiction

Within UAE, it is also possible to redomicile in DIFC (Dubai International Final Centre) and DTFZA (Dubai Technology and Media Free Zone Authority) which are specialized free zone authorities in financial services and technology, respectively. Foreign companies can redomicile and enjoy the tax and other benefits provided by the UAE tax free regime and its wide network of double tax treaties. They can also take advantage of a pleasant country which is an International Financial Centre, and a fine place to work and live. Why RAK FTZ • it offers a tax free environment • the government of RAK is probusiness • ensure secrecy, asset protection • absence of international exchange of information agreements

• strategic location on the trade routes of East and West • wide network of double tax treaties What is required to redomicile There are two distinct parts to redomiciliation:

b) there must be no on-going legal process against the outgoing company c) various documents need to be filed with and obtained from the outgoing registry d) a certificate of good standing and certificate of incumbency must be obtained in every case The incoming jurisdiction RAK FTZ Accordingly an overseas company, if authorized by the laws of the jurisdiction in which it is incorporated, can apply for continuation as a company in RAK FTZ. The application must include all information and documents required by RAK FTZ including resolutions, certifications,

declarations, confirmations, opinions, authorizations and clearances. Upon approval of the application for continuation, the authority will issue a provisional ‘certificate of continuation’ of such terms and conditions as it considers appropriate. The company should, within 3 months from the date of issue of the provisional certificate, file with the authority a certificate evidencing that the overseas company has ceased to be incorporated under the laws of the current jurisdiction and return the provisional certificate of continuation. RAK FTZ shall issue the final certificate of continuation which shall be effective from the date of continuation stated in the provisional certificate of continuation. Upon continuation of a company in RAK FTZ: • all assets, tangible and intangible, rights and all other property of any kind of the company continue to belong to the company • the company, its officers and directors continue to be liable for obligations of the company prior to its redomiciliation • any existing cause of action, claim, duty or liability to prosecution in respect of the company is unaffected • any civil, criminal or administrative action or proceeding pending by or against the company is unaffected • any conviction against, or any ruling, order or judgment in favour of or against the company prior to its redomiciliation may be enforced by or against the company

Detailed process to redomicile in RAK RTZ Application for Consent A foreign company may submit through a registered agent to the Registrar of Companies in RAK FTZ Authority to be registered in UAE as a continuing company. The application for Consent must be accompanied by the following documents: • statutory or regulatory provision which includes a reference to the statutory of regulatory provisions as amended or reenacted from time to time • proof that the Company has obtained all necessary authorisations and consents required under the laws of the jurisdiction in which it was incorporated • certification that the Company is, has been, and will remain as far as is reasonably foreseeable, solvent, signed by the directors of the Company, for a period of 12 months prior to the application • details of any charges created indicating the order in which they will be registered in the zone • the written consent of directors/ shareholders to: (i) the making of the application and (ii) the order of registration of charges • a certificate signed by the registered agent making the application in the form prescribed in the regulations • the applicable fee

• a notice in the form as depicted in the regulations announcing its intention to continue in the RAK FTZ The Registrar shall, after considering the application and after making such other enquiries grants its consent in writing. Registration The registered agent, during the period between the time of consent and within 3 months, must submit for registration the below: • the consent of the Registrar • Memorandum of Continuation or equivalent issued by the authorities in the jurisdiction in which the Company is incorporated • Articles of the Company which conform to the requirements of the regulations, and • particulars in the form prescribed in the IC regulations, of any existing charge On delivery of the above documents the Registrar shall register the Memorandum of Continuation and: • issue a certificate of registration of the Memorandum of Continuation • enter in the Register of Charges under the International Companies Regulations, in such order as the company may instruct, the particulars of charges delivered • The Memorandum of Continuation shall be deemed to be the Memorandum of Association

Countries Allowing Redomiciliation Andorra Anguilla Antigua Barbuda Aruba Austria Bahamas Bahrain Barbados Belgium Belize Bermuda British Virgin Islands Brunei Cayman Islands

Cook Islands Costa Rica Cyprus Dominica Gibraltar Grenada Guernsey Hungary Ireland Isle of Man Israel Jersey Latvia Lebanon Liberia

Lichtenstein Luxembourg Macao Malaysia (Labuan) Maldives Malta Marshall Islands Mauritius Montserrat Nauru Netherlands Antilles Panama Philippines Portugal (Madeira)

Samoa Seychelles St Kitts and Nevis St Lucia St Vincent Grenadines Switzerland Turks and Caicos Islands United Arab Emirates Uruguay US Virgin Islands USA (Delaware) Vanuatu

10 Labour Labour Law The federal act no 8 1980 as amended by law of 1986 (“the Labour Law”), administered by the Federal ministry of labour and social affairs (“the ministry”) in the UAE, regulates employment terms such as hours of work, leave, termination rights and medical benefits. The provisions of the Labour Law override any conflicting provisions in any contract of employment that are less beneficial to the employee. Businesses are encouraged to employ UAE nationals and expatriates can be employed only after approval from the ministry and on obtaining work permits. A specimen form of labour contract in Arabic is available from the ministry and is widely used, although other forms of contracts are enforceable, if registered, provided that they comply with the Labour Law. There are two basic forms of contract, those with a specified term and those with an unspecified term. The Labour Law applies to both types of contract with the main difference being the end of service benefits. There are no trade unions in the UAE. In the event of a dispute between the employer and the employee or in the interpretation of the Labour Law, the ministry initially acts as an adjudicator to resolve the dispute. If a party wishes to appeal a decision of the ministry, it can take its case to court. Compensation package Salaries and benefits offered to employees vary between organizations. The remuneration structure also varies although two of the commonly used structures are:

• breaking up the total emoluments into separate amounts for basic pay, house rent allowance (HRA), travel allowance and other expatriate benefits like medical, leave passage and gratuity. This structure is popular with a majority of the companies including some multinational companies in the country • a gross package that consists of the basic pay element and an allowance element (covering all allowances) Social security In respect of UAE nationals there is a state security fund, general social security and pensions authority, requiring contributions by the employer and the employee. Insurance such as workmen’s compensation against industrial injuries is common in industrial establishments. End of service benefits In accordance with the UAE Labour Law, an employee who has completed a period of one or more years’ service is entitled to end of service benefits on termination of employment. Days of absence from work without pay are not included when calculating the period of service. The employee’s end of service benefits generally include gratuity, accrued leave encashment, pay in lieu of notice period. Gratuity is payable in accordance with UAE Labour Law and is as follows:

Labour

Specified duration contract •

21 days basic salary for each year of service for the first five years of service

•

30 days basic salary for each year of service thereafter, on condition that the total gratuity does not exceed twenty-four months basic salary

If an employee resigns, prior to completion of the contract period of a specified duration contract, gratuity is not payable. However, where an employee completes a five year service, gratuity is payable on resignation even if the contract is for a specified period and the employee resigns before the end of this period.

The maximum amount of gratuity payable is equivalent to 24 months basic salary. If the employee is a UAE national, gratuity is paid to the general social security and pensions authority. Sick pay If an employee has completed more than 6 months of the probation period in continuous service of the employer and falls ill, he is entitled to sick leave not exceeding 90 days whether continuous or otherwise, in respect of each year of service. Such leave shall be calculated as follows: •

full pay for the first 15 days

•

half pay for the next 30 days

Unspecified duration contract

•

without pay thereafter

On termination or resignation after five years of service, gratuity is payable on the same basis as that for employment contracts of specified duration.

Normally a medical certificate is required for being absent for two consecutive days due to medical reasons.

If an employee resigns within five years, gratuity is calculated as follows: Where continuous service is over one year but less than three years, the employee is entitled to one third of the gratuity as described for the specified duration contract above. Where continuous service is more than three years but less than five years, the employee is entitled to two thirds of the gratuity as described for the specified duration contract above.

Holidays In addition to annual leave, employees are entitled to pay for official holidays and public holidays which are officially declared by the government, on the following days: •

New Year’s day (Islamic calendar)

• New Year’s day (Gregorian calendar) •

Eid Al Fitar

•

Eid Al Adhah

•

Birthday of the Prophet

•

Accession day

•

National day

Visa and permit requirements In general, all visitors, except citizens of the GCC states and transit visitors must obtain visas to enter the UAE. There are several types of visas and permits available in the UAE. Citizens of exempted countries can automatically obtain a limited period entry permit on arrival. Employment visa This is intended for those entering the country for employment purposes, but in practice employees often enter on a visit visa that is then converted to an employment visa.

Employment visas are often issued by the ministry. In general, a business can recruit either expatriate or local staff subject to certain requirements. Employers must apply to the ministry for visas for individual members of staff, although certain categories of employer may obtain group visas that permit the employment of a specified number of staff without personal particulars. An informal employment quota is allocated to the employer based on the size of the business, but numbers may be increased if adequate reasons are given and the employer is in good standing as regards compliance with labour regulations.

Over the past years, the UAE has increasingly emerged as one of the most popular jurisdictions worldwide for the relocation of high net worth individuals (HNWIs), even becoming a preferred alternative to traditional jurisdictions such as the UK, Switzerland, Monaco and Singapore

11 Working and HNWI Living Lifestyle There is little crime in the UAE and the country is clean, with modern facilities. Foreign newspapers, magazines, films and videos are readily available. Alcohol is available for consumption by non-muslims in certain emirates and may be consumed at home, in hotels and on licensed club premises. There is also a wide range of entertainment available including clubs, cinema, theatres, desert safaris, and there are many sporting facilities, restaurants and hotels. Women are permitted to work and can drive and move around unaccompanied. Transport The UAE has a comprehensive road network with driving on the right hand side of the road. Taxis are the main form of public transport. Visitors may hire a car if they hold an international driving license. Major international car rental companies operate in the UAE. Education There are government schools in all the emirates providing free primary and secondary education to UAE nationals. There are private foreign schools offering the academic curriculum of the UK, the US and other countries such as Italy, Japan, Iran, France, Germany, India and Pakistan as well as the international baccalaureate. Medical services The department of health and medical service provides medical care to all UAE nationals, visitors

and resident expatriates. The department issues health cards to individuals that entitle them to subsidised consultation and free medicines. Fees on medical examination by consultants in hospitals are less for health card holders than for noncard holders while UAE nationals who hold health cards are exempt from these charges. Expatriate visitors on visit and transit visas can use the government health services offered by paying a fee to a general practitioner or specialist, only twice during their stay in UAE, without paying any health card fees. Otherwise they may use private facilities. Working hours Normal hours of work are 8 hours a day. Hours of work may be increased to 9 hours a day in commercial establishments, hotels, cafes, for security and any other operations where such increase is authorised by order of the minister of labour and social affairs. Normal working hours are generally reduced by two hours a day during the holy month of Ramadan. Where the circumstances of work require an employee to work more than the normal number of hours, overtime payments are made at 25 percent or 50 percent in excess of normal rates of pay, depending on the number of excess hours worked. Friday is the weekend except for daily paid employees. Where circumstances require an employee to work on Friday, the employee is

Working and HNWI Living

given a day off in lieu or is entitled to receive 150 percent of daily basic pay. Government departments and the private sector generally work 5 days a week commencing Sunday.

• bank confidentiality and no exchange of information agreements with any country • sound and developed economy with significant natural resources, state reserves and growth prospects

Relocation to Dubai described as “new Switzerland”

• mature, safe, well capitalized and regulated banking sector

• banking system that allows 24/7 online transfer capabilities and cash withdrawals

With no taxes applied on individuals, straightforward administrative requirements and low processing costs, coupled with political stability, excellent accessibility and sunny weather all round, the UAE is indeed a very attractive proposal as a residency jurisdiction.

• no social unrest and low crime rate

The UAE’s position has further been reinforced by the ongoing tax backlash in other hubs – eg amended UK regimes pertaining to “non-doms”, first signs of erosion of the lump sum tax system in Switzerland as well as plans from various countries to tighten the screw on Europe’s tax havens. Dubai is widely described as the “new Switzerland”. Many advantages exist for HNWI in Dubai to fit this description, including: • pro-business and advantageous tax regime, no personal and corporate taxes, no capital restrictions and 100 percent repatriation of capital and profits

• stable currency pegged to the US dollar eliminating currency risks • a regime that prohibits unethical and high risk activities • abundance of high end accommodation facilities, marinas, entertainment, luxury lifestyle and world class shopping • business hub with significant commercial activity and profusion of top end office space, staff and executives for employment • world class health system • top international schools and universities at all levels • advanced telecommunications • air connections via world class airports with significant direct flights and major transit hub • a good climate, sunny for most of the year at the sea coast Further, one has also to bear in mind the following: • not used by “everybody” but businesses that intend to have serious activities

• not abused by “large numbers” only to take advantages without having economic and commercial substance

• anti- money laundering regime with rigorous due diligence procedures from banks , financial institutions and authorities

Why Relocate in the UAE? • exemption from income tax and wealth tax for individuals • no quotas on the number of issued Residence Permits • no requirement to obtain a fiscal quitus from the foreign country • no minimum requirement regarding the time spent annually in the jurisdiction other than visiting the UAE at least once every six months • no requirement to effectively reside in the UAE • competitive costs for issuance and renewal of the Residence Permit • competitive costs of ongoing substantiation • presence of internationally recognized financial legal and tax services providers • primary hub and platform to access international business • political stability • pleasant climate

Working and HNWI Living

Residence permits Individuals, other than UAE and GCC citizens, must have a residence visa if they want to live in the UAE. Obtaining a residence permit is the primary condition for being considered as resident in the UAE. As a general rule, one has to have a sponsor in order to apply for a residence permit in the jurisdiction. For many expatriates, the company that employs them will act as their sponsor and secure them residence visa. For those who do not come on an employment contract, there are two other ways for obtaining UAE residency: • investment in real estate (property residence visa) • set up of corporate structure to act as sponsor Investment in real estate The UAE government in June 2011 introduced a new system extending the validity of the visa granted to real estate investors to up to 3 years. The following rules and conditions govern the issuance of a real estate investor visa: • the property is built and ready for accommodation • the applicant proves ownership (title deed issued by the Land Registrar) • the property is worth minimum AED 1mn (equivalent to US$300.000) with no mortgage • the applicant’s income is higher than AED 10.000 (US$3.000) monthly

• only one sponsorship can be obtained for each property, irrespective of size. This does not restrict the main sponsor to act as sponsor for family members • when the property is sold, the main sponsorship as well as the sub-sponsorship connected to the property are discontinued • since the property must be held in person, no indirect holding through a company is allowed, leaving no room for inheritance planning In order to obtain a residence permit, a new real estate investor must follow the following steps: • approach the Dubai Land Department with the title deed along with passport copy and passport size photo • after payment of the fee, the Dubai Land Department will issue an approval certificate • the owner has to approach the Department of Economic Development, which will then issue a trade licence • when the trade licence is issued, the property owner can approach the Immigration section in the Land Department, which will issue a 2 year investor visa In Dubai, article 4 law no 7 permits individuals of non-GCC countries and companies owned in full or in part by foreign investors to acquire, in certain areas of Dubai:

• absolute ownership of land without restrictions as to time, and

situated in the northern emirates. Usually, these options consist of “flexi desks” or “flexi offices”.

• leasehold of land for a period not exceeding 99 years

Subject to the sponsoring company being properly maintained ie the company’s licence must be renewed on a yearly basis, the residence permit is valid for a period of 3 years. Then, the resident ie the person who received a residence permit via his company, can sponsor the members of his family, for a similar period of 3 years.

In the past, any offshore company, wherever registered, was authorized to hold properties in Dubai. However, as of January 2011, the Dubai Land Department does not allow the registration of acquisition of properties in Dubai by foreign offshore (BVI, Cayman Islands, Bahamas etc) and local (RAKIA/RAK) companies. This rule has only one exception: the companies registered in UAE’s JAFZA (Jebel Ali free zone authority). There is a 4 percent fee levied by the Dubai Land Department for the registration of title to real estate. Corporate structure As a general rule, one has to have a sponsor in order to apply for a residence permit in the jurisdiction. For foreigners, setting up a company is a practical way of obtaining sponsorship. As far as the company is concerned, it must have physical presence in the UAE. In that regard, the most interesting and cost effective options are proposed by free zones

The cost of a 3 year UAE residence visa is around AED 7.500 (US$2.000) (one time fee). The assessed costs for the set up of a free trade zone company including the processing of one residence permit, are as follows: • Year 1: US$ 10.000 The maintenance costs from the second year onwards, are as follows: • Year 2 onwards: US$7.500 The setting up process for a free zone company usually takes no more than 7 to 10 working days. The processing of a residence permit through a free trade zone company takes between 18 and 20 working days.

Working and HNWI Living HNWI comparison The table below is not aimed at exhaustively listing all jurisdictions where HNWIs may consider relocating for tax purposes. Rather, it constitutes a subjective list of some of the jurisdictions of which HNWIs may consider for relocation.

HNWI - Comparison of Favourite Relocation Countries EUROPE United Kingdom

Switzerland

Main advantages

Competitive tax system. Tax incentive schemes. Relatively law capital gains tax. Facilitated access to all Schengen states. Comprehensive tax treaty network. Good standard of living and health care facilities. Politically stable.

No minimum stay. No need to declare worldwide income and assets if annual lump-sum taxation. No capital gains tax, except on sale of business property. Free access to all Schengen States. Comprehensive tax treaty network. Politically stable.

Key conditions in practice

Investment of a min value of £1mn, £5mn Constitution of a company (and minimal or £10mn into qualifying UK investments. investment in such company) or lump-sum taxation.

Quotas on number of issued Residence Permits

None

EU/EFTA Citizens: None All others: Yes for first time applicants

Mandatory interview

Yes

Presence of applicant during the application

Not required

Time frame for procedure completion

4-8 weeks

EU/EFTA Citizens: 2-4 weeks All others: 2-4 months.

Validity and renewal of residence permit

Valid for 3 years, renewable for 2 years. After 5 years, a permanent residence can be applied for.

EU Citizens: 5 years. After 5 years, a permanent residence (valid for up to 10 years) can be applied for. All others: Valid for 1 year – annual renewal until Permit can be applied for (10 years initial period).

Required legal presence “day counting”

De lege: Not required. In practice: recommended not to spend more than 183 days in another jurisdiction. 180 days required to qualify for permanent residence.

De lege: Not required. In practice: recommended not to spend more than 183 days in another jurisdiction.

For many expatriates, the company that employs them will act as their sponsor and secure them residence visa. For those who do not come on an employment contract, there are two other ways for obtaining UAE residency: • investment in real estate (property residence visa) • set up of corporate structure to act as sponsor

Monaco

MIDDLE EAST

ASIA

UAE

Singapore

No Income and capital gains. No direct inheritance tax. Free access to all Schengen States. Comprehensive tax treaty network.

No minimum stay. Total exemption from income, wealth, gift and inheritance tax. Competitive costs of issuance and ongoing substantiation of residence permit. Yearly sunny climate. Accessibility. Comprehensive tax treaty network. Politically stable.

All foreign income is exempted even if remitted to Singapore. No capital gains, wealth, inheritance nor gift taxes. Comprehensive tax treaty network.

Real estate investment or subscribe to a tenancy agreement and letter from Monaco bank that applicant has sufficient funds.

Constitution of a company or investment in real estate US$500.000

Constitution of a company (sum US$ 2.500.000 investment in a government approved fund). Applicant to produce 3 years audited financial statement of his/her company.

None

EU Citizens: No All others: Yes

Yes

Not required for initial application. Required for collection of residence permit.

Not required for initial application. Required for visa processing and collection of residence permit.

Required for interview. Not required otherwise.

EU/EFTA Citizens: 4-6 weeks. All others: 3-4 months plus 2 weeks from the date of interview.

3-4 weeks

8 months

Residence Permit 1-3: Valid for 1 year and renewable yearly Residence Permit 4-6: Valid for 3 years and renewable for the same term.

Valid up to 3 years. Renewable for up to 3 years.

Valid up to 3 years. Renewable for up to 5 years.

Required. Monaco must be the main home to maintain tax residence status.

De lege: Not required. In practice: 1 day every 6 months and recommended not to spend more than 183 days in another jurisdiction.

Required. More than 183 days.

Working and HNWI Living

HNWI - Comparison of Favourite Relocation Countries (cont’d) EUROPE United Kingdom

Switzerland

Cost of 1Bdr flat (70 m2)

Rental: US$46.700/year Purchase: US$ 545.000

Rental: US$ 25.000/year Purchase: US$ 630.000

Taxation

Annual tax filings: Mandatory. Income Tax: min of 20% Capital gains tax: max of 28%. Wealth/net worth tax: none. Gift tax: yes, but with possible exemption. Inheritance tax: none for an estate to up to a max value £325.000 and 40% on any value beyond the threshold. Special regime available to so-called “Resident non domiciled”: only for UK source income and foreign income remitted to the UK. After 7 years, remittance basis charge (£30.000 to £50.000)

Annual tax filings: Mandatory Income Tax: Levied on the Federal, cantonal and municipal level. Capital gains tax: None except on sale of business property. Inheritance, Gift and wealth/net tax: levied at the cantonal and municipal level.

MIDDLE EAST

ASIA

Monaco

UAE

Singapore

Rental: US$ 30.000/year Purchase: US$ 2.695.000

Rental: US$ 12.000/year Purchase: US$ 300.000

Rental: US$ 30.000/year Purchase: US$1.100.000

Annual tax filings: Mandatory. Income Tax: None (unless French citizen). Capital gains tax: None, except for French residents. Gift, Inheritance tax: 0 to 16% on Monaco assets. Wealth/Net worth tax: None.

Annual tax filings: None. Income Tax: None. Capital gains tax: None. Inheritance tax: None. Gift tax: None. Wealth/Net worth tax: None.

Annual tax filings: Mandatory. Income tax : 20% on income generated in Singapore, none on foreign income even if remitted to Singapore Capital gains tax: None. Inheritance tax: None. Gift tax: None. Wealth/Net worth tax: None.

(Courtesy of M/ Advocates of Law, UAE)

12 Oneworld MidEast ltd At Oneworld MidEast we provide integrated solutions to our clients. A significant portion of our business is trust and corporate registration and administration for private individuals. Many corporate clients come to us for a complete solution and for many we setup and administer their individualized tax efficient structures. We also render international tax advice, financial advisory, accounting and payroll, VAT and customs, corporate finance and other pertinent services. Like our clients, we maintain the highest professional standards, code of conduct and integrity. Our due diligence procedures more than meet the requirements of the highly regulated jurisdictions in

which we work. Our staff is trained comprehensively in anti-money laundering and “know your client” procedures. As one would expect, confidentiality is paramount in all our dealings, and our staff are bound by law to maintain professional confidence. We are one of the leading corporate providers and we bring a depth of experience to our work and dealings with clients. Our personnel consists of chartered accountants, lawyers, financial advisors, tax specialists, administrators and company secretaries as well as a highly trained and knowledgeable corporate and support staff.

Services Corporate and Trust

Global Compliance

Tax and Legal

Company Formation

Risk and Regulatory Compliance

International Tax Planning

International Structuring

Bookkeeping and Reporting

Legal Services

Fund Administration

Fund Valuation Services

Legal Support

Domiciliary Management

HR and Payroll

Registrar and Shareholders Business Advisory

Financial Advisory

Family Office

Regulatory Compliance

Corporate Finance

Asset Management

Corporate Strategy

Financial Due Diligence

Asset Protection

HR Management

Mergers and Acquisitions

Investment Advice

Internal Audit and Review

Financial Reporting

Oneworld MidEast ltd

Directors George Philippides George is our chairman and CEO. He has 30 years experience in the consulting, audit and fiduciary sectors, advising clients from around the globe. George frequently consults large and smaller clients to restructure, rationalize and optimize operations and resources. He has written numerous articles on professional topics especially with regard to tax planning opportunities and the advantageous use of double tax treaties. He is a Chartered Accountant having qualified in London with a big 4 firm and holds a bachelor’s degree from the London School of Economics. He is founder and currently adviser to Oneworld ltd and served as chairman and CEO of BDO Cyprus until 2010. gphilippides@oneworldmideast.net Costas Ioannou Costas is the manager of our Dubai office and director of Oneworld MidEast Ltd. Costas regularly advises small and medium size clients to restructure their international holdings and use the UAE to maximise profit retention. He has previously practised as auditor and headed his own management consulting firm in the UK, advising private and public sector organizations. He is a fellow member of the Chartered Institute of Certified Accountants and a registered accountant and auditor in Cyprus, the UK and the UAE. He also holds a bachelor’s degree from North London University and is a qualified Prince2 project management practitioner. cioannou@oneworldmideast.net

Savvas Shiatis Savvas is a director, heading our tax and legal services. He possesses considerable experience in advising clients to structure their international activities with emphasis on financial services. He has been involved in diverse projects covering tax planning, licensing of financial service companies, internal audit, compliance functions and regulatory issues. Savvas qualified as a Chartered Accountant in London and holds a bachelor’s degree from the London School of Economics. He is an adviser to Oneworld ltd for international tax, legal and financial services issues. sshiatis@oneworldmideast.net

Oneworld MidEast ltd

Address Bayswater Tower Level 18 Al Abraj South Street Business Bay PO Box 333641 Dubai UAE T +971 45515693 F +971 42767612 info@oneworldmideast.net